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    Liquidity premium

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    The one year spot rate is 9% and the two year spot rate is 7%. If the one year spot rate expected in one year is 4.5%, according to the liquidity preference theory, what must be the one year liquidity premium commencing one year from now?

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    https://brainmass.com/business/strategy-and-business-analysis/liquidity-preference-theory-6723

    Solution Summary

    Calculates the liquidity premium given one and two year spot rates.

    $2.49

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